ICPA Analysis: Why Trademark registration is so important
Making your mark
Your client’s company name, products or logo could become their most valuable asset. So you should help them protect it, says Eugene Pienaar
A trademark is a sign that identifies the products or services of a business; it may consist of words, slogans, logos, shapes, numerals and colours, or any combination of these. In essence, it is a badge of origin that allows customers to distinguish the goods or services of one trader from those of another.
Trademark registration: why it is so important!
Few entrepreneurs and SME owners are aware of the importance of protecting their trademark (business/trade or product name, etc). One of the main reasons for this is ignorance on their part; many believe that a company or domain name registration gives them the right to use the name and/or prevent others from using it. A recent survey revealed that 80% of small and medium sized enterprises have not registered the name of their business as a trademark.
Company/domain name registrations give the owner no rights to a name. The only way to secure exclusive rights to a name is by registering it as a trademark. The benefits associated with trademark registration are substantial, the most obvious being the exclusivity aspect and the right to prevent a third party from using an identical or confusingly similar name.
There are also numerous commercial advantages associated with trademark registration. Firstly, trademark registrations can be used as negotiating tools in business deals, as they can greatly facilitate the negotiation of licenses, franchises and the transfer of ownership. Secondly, registered trademarks are ‘quantifiable’ assets in their own right, thereby commanding a presence in a company’s balance sheet. This in turn enhances the value of a business for potential investors, lenders, purchasers and public offerings. Thirdly, a registered trademark
can serve as security for financial transactions, thereby giving the trademark proprietor more options and greater financial flexibility.
However, and more importantly, the commercial and financial consequences in failing to obtain a trademark registration can be extremely damaging to a company. Here are merely a few possibilities:
1. Use of a name may end up infringing a third party’s right, which could mean litigation, re-branding or even withdrawal from the market. This can be an expensive exercise as it could mean re-packaging goods, changing stationery and redesigning letterheads, websites, etc. In fact, any goodwill that you may have accumulated in the name would have to be forfeited, which could be very damaging.
2. Very little protection (and none if there is no reputation) is given to an unregistered mark as one has to rely on common law rights (as opposed to statutory rights) to prevent another entity trading under or using an identical or similar name. Even if there is a reputation the legal requirements are notoriously difficult and very expensive to prove. As a result, few ‘passing off’ actions are successfully instituted. The reality is that for most SMEs there will be no protection.
3. If someone registers your name as a trademark (before you do) the worst case scenario is that the third party could prevent you using your name altogether. They could stop you using it outside the area in which you have a reputation (if you trade in London you will not be able to trade in Manchester, for example, under the same name (unless you are able to prove that your reputation extends to Manchester).
4. Failure to obtain a trademark registration could severely hamper an owner’s ability to grow the business and expand into other regions. This is particularly important from a franchising or licensing perspective but is equally important in circumstances where a business expands into other regions or territories due to organic growth or acquisition.
5. A trademark registration is an intangible asset that adds value to a business. Failure to register a trademark could have negative implications on the value of a business in the event of a business sale (unregistered marks are often ‘deal killers’ when negotiating with third parties).
The above examples illustrate the commercial importance of protecting a trademark. Failure to protect a trade mark exposes a company to unnecessary risk and for the sake of a few hundred pounds (i.e. the cost of registration) it really is not worth it.
Most small to medium sized companies tend to be reactive when seeking trademark protection, only taking action after problems have arisen. This is a dangerous strategy that can result in their trademark rights being severely curtailed (not to mention the significant and unnecessary legal costs that will be incurred).
In the next issue of Accounting practice I will fully explain the registration process.
• Eugene Pienaar is the founder and Managing Director at RevoMark. See www.revomark.co.uk
This article is taken from “Accounting Practice” the ICPA quarterly magazine. Dedicated to supporting and promoting the needs of the general practitioner. You can find us at www.icpa.org.uk or email email@example.com or by ‘phone on 0800-074-2896.